Indian Group Moves Against Bharti-MTN Merger

As the proposed merger between Bharti Aitel, India's largest mobile operator and the MTN group of South Africa reaches a conclusion, an Indian consumer pressure group has kicked against the deal and warned that the proposed deal between Bharti and MTN could breach the country's foreign ownership rules.

The companies are exploring a tie-up that would most probably see Bharti acquire MTN in a cash and stock deal worth up to $45bn, creating one of the world's largest telecom operators in emerging markets.

But FT reports that Telecom Watchdog, a Delhi-based non-profit organisation, has challenged the deal saying that the the stock element of any deal could lift Bharti's foreign ownership above the 74 per cent limit allowed under Indian law, and has threatened a lawsuit if there is a breach.

Telecom Watchdog is already involved in legal action over Vodafone's $10.9bn deal last year to take control of Hutchison Essar, India's fourth-largest mobile phone group. It alleges that the deal breached India's foreign ownership limits. That case will be heard by the Delhi High Court in August.

Telecom Watchdog raised the prospect of similar court action over any Bharti-MTN tie-up with MTN chairman Cyril Ramaphosa in a letter at the weekend, seen by the Financial Times.

It said: "In case of a merger we have apprehensions of a possible breach of Indian regulatory norms related to foreign investment...In case of any regulatory breach, we will not hesitate in going to the Indian courts for a legal recourse to stop any illegalities."

Bharti is likely to have to use its own paper to fund any deal. Any such transaction would see MTN's leading shareholders take significant stakes in the merged entity, say people familiar with the matter.

But it would also allow MTN to ease political concerns about one of South Africa's largest companies becoming foreign-owned.

Telecom Watchdog contends that Bharti is already 65 per cent foreign-owned, including a 31 per cent stake held by Singapore Telecoms.

"Bharti can offload only up to a maximum of nine per cent of its Indian equity in favour of foreign investment," it said in the letter.

It cautioned MTN from "accepting any possible suggestion of consultants which would lead to circumventing of regulatory caps".

Telecom Watchdog is scrutinising talks between Bharti and MTN. "We are happy if [Bharti] buys 51 per cent of MTN," said Anil Kumar, secretary of Telecom Watchdog. "But in case of a share swap, they will definitely breach the FDI cap. We will oppose it. If the deal is hung in court, who will suffer? South Africa will suffer," he said.